Digital Options
2 min read
The instrument at the core of Raven Market — and why it's the cleanest on-chain derivative for directional trading.
What is a Digital Option?
A digital option — also called a cash-or-nothing option — is a derivative where the payoff is either a fixed monetary amount or nothing, depending on whether the underlying asset satisfies a price condition at expiry. The payout is not influenced by how far price moves past the strike — only whether it does.
For a CALL digital option:
N = fixed notional · ST = settlement price · K = strike
Digital vs. Vanilla Options
| Property | Digital Options | Vanilla Options |
|---|---|---|
| Payout profile | Fixed (all-or-nothing) | Variable — grows above strike |
| Max loss | Stake only | Premium only |
| Greeks complexity | Low — direction only | High — delta, gamma, vega, theta |
| Position management | Set and forget | Active hedging often required |
| On-chain feasibility | High — boolean outcome | Moderate — continuous pricing required |
Digital vs. Perpetuals
| Property | Digital Options | Perpetual Futures |
|---|---|---|
| Liquidation risk | None | Yes |
| Funding rates | None | Continuous |
| Max loss | Stake only — hard cap | Entire margin, and more with leverage |
| Complexity | Low | High |
Why Digital Options On-Chain?
Digital options map cleanly to blockchain settlement. The outcome is a boolean — a smart contract either transfers a payout or it doesn't. No clearing house. No margin engine. No continuous price tracking post-entry. This simplicity is what makes digital options ideal for a trustless, non-custodial, fully on-chain protocol.
What Raven Is Not
- Not a prediction market — no governance-based resolution, no long-tail event markets.
- Not a perpetuals exchange — no leverage controls, no funding rates, no liquidations.
- Not gambling — outcomes are determined by real asset prices via the Chainlink oracle, not random events.
- Not a centralized platform — no custodial risk, no counterparty risk from a central entity.